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Q:
In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Q:
In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Q:
In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.
A. up; left
B. up; right
C. down; left
D. down; right
Q:
In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.
A. up; left
B. up; right
C. down; left
D. down; right
Q:
In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Q:
In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Q:
A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Q:
A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Q:
Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending
A. merely causes a movement along the IS curve and not a shift.
B. is crowded out by higher taxes.
C. is crowded out by higher government spending.
D. is crowded out by lower consumer expenditures.
Q:
A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; IS; left
D. fall; LM; left
Q:
An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A. rise; LM; right
B. rise; IS; right
C. fall; LM; left
D. fall; IS; left
Q:
In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Q:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A. rise; left
B. rise; right
C. fall; left
D. fall; right
Q:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.
A. up; left
B. up; right
C. down; left
D. down; right
Q:
In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.
A. up; left
B. up; right
C. down; left
D. down; right
Q:
In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Q:
In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A. up; rise
B. up; fall
C. down; rise
D. down; fall
Q:
Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________.
A. IS; right
B. IS; left
C. LM; left
D. LM; right
Q:
The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation. How do increases in the interest rate reduce aggregate demand?
Q:
Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to rise.
A. right; supply
B. right; demand
C. left; supply
D. left; demand
Q:
Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.
A. right; supply
B. right; demand
C. left; supply
D. left; demand
Q:
Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess demand of goods which will cause aggregate output to ________.
A. right; fall
B. right; rise
C. left; fall
D. left; rise
Q:
Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess supply of goods which will cause aggregate output to ________.
A. right; fall
B. right; rise
C. left; fall
D. left; rise
Q:
Everything else held constant, if aggregate output is to the left of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.
A. supply; fall
B. supply; rise
C. demand; fall
D. demand; rise
Q:
Everything else held constant, if aggregate output is to the right of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.
A. supply; fall
B. supply; rise
C. demand; fall
D. demand; rise
Q:
The ________ describes points for which the goods market is in equilibrium.
A. LM curve
B. IS curve
C. consumption function
D. investment schedule
Q:
The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.
A. LM curve
B. IS curve
C. consumption function
D. investment schedule
Q:
Points on the IS curve satisfy ________ market equilibrium.
A. money
B. goods
C. stock
D. bond
Q:
The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.
A. IS; upward
B. IS; downward
C. LM; downward
D. LM; upward
Q:
A decrease in interest rates
A. increases the value of the dollar, net exports, and equilibrium output.
B. increases the value of the dollar, reducing net exports and equilibrium output.
C. reduces the value of the dollar, net exports, and equilibrium output.
D. reduces the value of the dollar, increasing net exports and equilibrium output.
Q:
An increase in interest rates
A. increases the value of the dollar, net exports, and equilibrium output.
B. increases the value of the dollar, reducing net exports and equilibrium output.
C. reduces the value of the dollar, net exports, and equilibrium output.
D. reduces the value of the dollar, increasing net exports and equilibrium output.
Q:
When interest rates fall in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.
A. falls; less; fall
B. falls; less; rise
C. falls; more; fall
D. rises; less; fall
Q:
When interest rates rise in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.
A. falls; less; fall
B. falls; more; rise
C. rises; more; fall
D. rises; less; fall
Q:
When the interest rate is ________, ________ investments in physical capital will earn more than the cost of borrowed funds, so planned investment spending is ________.
A. high; few; high
B. high; few; low
C. low; few; high
D. low; many; low
E. high; many; high
Q:
When the interest rate rises
A. planned investment falls.
B. planned investment rises.
C. planned investment will be unaffected.
D. equilibrium income increases.
Q:
At the time of the South Korean financial crisis, the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________.
A. were not; could borrow abroad
B. were not; could not borrow abroad
C. were; could borrow abroad
D. were; could not borrow abroad
Q:
The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by
A. allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions.
B. allowing unlimited short-term and long-term foreign borrowing by financial institutions.
C. maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions.
D. not allowing any foreign borrowing by financial institutions.
Q:
Before the South Korean financial crisis, sales by the top five chaebols (family-owned conglomerates) were
A. nearly 50% of GDP.
B. about 10% of GDP.
C. almost 90% of GDP.
D. nearly 25% of GDP.
Q:
The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as
A. increased crime.
B. difficulty getting a loan.
C. currency devaluations.
D. loss of output.
Q:
A feature of debt markets in emerging-market countries is that debt contracts are typically
A. very short term.
B. long term.
C. intermediate term.
D. perpetual.
Q:
Argentina's financial crisis was due to
A. poor supervision of the banking system.
B. a lending boom prior to the crisis.
C. fiscal imbalances.
D. lack of expertise in screening and monitoring borrowers at banking institutions.
Q:
Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include
A. rise in interest rates abroad.
B. bankers' lack of expertise in screening and monitoring borrowers.
C. deterioration of banks' balance sheets because of increasing loan losses.
D. stock market decline.
Q:
Factors that led to worsening financial market conditions in East Asia in 1997-1998 include
A. weak supervision by bank regulators.
B. a rise in interest rates abroad.
C. unanticipated increases in the price level.
D. increased uncertainty from political shocks.
Q:
Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include
A. failure of the Mexican oil monopoly.
B. the ratification of the North American Free Trade Agreement.
C. increased uncertainty from political shocks.
D. decline in interest rates.
Q:
The key factor leading to the financial crises in Mexico and the East Asian countries was
A. a deterioration in banks' balance sheets because of increasing loan losses.
B. severe fiscal imbalances.
C. a sharp increase in the stock market.
D. a sharp decline in interest rates.
Q:
A sharp depreciation of the domestic currency after a currency crisis leads to
A. higher inflation.
B. lower import prices.
C. lower interest rates.
D. decrease in the value of foreign currency-denominated liabilities.
Q:
In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency
A. results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged.
B. results in an increase in the value of the firm's assets.
C. means that the firm does not owe as much on their foreign debt.
D. strengthens their balance sheet in terms of the domestic currency.
Q:
Severe fiscal imbalances can directly trigger a currency crisis since
A. investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency.
B. the government may stop printing money.
C. the government may have to cut back on spending.
D. the currency must surely increase in value.
Q:
The two key factors that trigger speculative attacks on emerging market currencies are
A. deterioration in bank balance sheets and severe fiscal imbalances.
B. deterioration in bank balance sheets and low interest rates abroad.
C. low interest rates abroad and severe fiscal imbalances.
D. low interest rates abroad and rising asset prices.
Q:
Factors likely to cause a financial crisis in emerging market countries include
A. severe fiscal imbalances.
B. decreases in foreign interest rates.
C. a foreign exchange crisis.
D. too strong oversight of the financial industry.
Q:
The mismanagement of financial liberalization in emerging market countries can be understood as a severe
A. principal/agent problem.
B. asymmetric information problem.
C. lemons problem.
D. free-rider problem.
Q:
All of the following might create problems from financial liberalization in emerging countries EXCEPT
A. ineffective screening of borrowers.
B. limits on risk-taking.
C. lax government supervision of banks.
D. lenders failure to monitor borrowers.
Q:
In emerging market countries, the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.
A. negative
B. positive
C. affirming
D. advancing
Q:
Financial crises generally develop along two basic paths
A. mismanagement of financial liberalization/globalization and severe fiscal imbalances.
B. stock market declines and severe fiscal imbalances.
C. mismanagement of financial liberalization/globalization and stock market declines.
D. stock market declines and unanticipated declines in the value of the domestic currency.
Q:
Real business cycle theory states that the most important cause of business cycles is
A. shocks to the money supply.
B. interest rate shocks.
C. Federal Reserve policy decisions.
D. shocks to tastes and technology.
Q:
Real business cycle theorists are critical of monetarist reduced-form evidence because they believe
A. money is the most important cause of changes in aggregate demand.
B. there is reverse causation from the business cycle to money.
C. there is reverse causation from money to the business cycle.
D. business cycles do not exist.
Q:
As a result of recent empirical research, there has been a convergence of Keynesian and monetarist opinion to the view that
A. money is all that matters.
B. money does matter.
C. money does not matter.
D. fiscal policy is all that matters.
Q:
A criticism of the monetarist autonomous spending variable is that
A. some types of autonomous spending do not affect aggregate demand.
B. some types of autonomous spending affect aggregate demand before the spending occurs. Some types of autonomous spending affect aggregate demand when they occur.
C. some types of autonomous spending affect aggregate demand only long after they occur.
D. Keynesians do not think that autonomous spending affects aggregate demand.
Q:
The monetarist statistical evidence examines the correlations between both ________ and ________ with ________.
A. money; aggregate spending; the unemployment rate
B. money; autonomous expenditures; the unemployment rate
C. money; consumption spending; aggregate spending
D. money; autonomous expenditures; aggregate spending
Q:
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period
A. the growth rate of the money supply decreased before output decreased.
B. interest rates decreased before output decreased.
C. the growth rate of federal government spending decreased before output decreased.
D. the growth rate of state and local government spending decreased before output decreased.
Q:
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the ________ decreased before ________ decreased.
A. money supply; interest rates
B. money supply; output
C. budget deficit; interest rates
D. budget deficit; output
Q:
Periods of price deflation, such as the Great Depression, are characterized by
A. low nominal rates but high real rates of interest.
B. low nominal and real interest rates.
C. real rates of interest lower than the nominal rate of interest.
D. high nominal and real rates of interest.
Q:
Movements of ________ interest rates indicate that, contrary to the early Keynesians' beliefs, monetary policy was ________ during the Great Depression.
A. nominal; tight
B. nominal; easy
C. real; tight
D. real; easy
Q:
During the Great Depression, real interest rates
A. rose to unprecedentedly high levels.
B. rose only slightly above the long-run trend.
C. fell to unprecedentedly low levels.
D. fell only slightly below the long-run trend.
Q:
By the standard of low-grade bonds, interest rates were ________ and monetary policy was ________ during the Great Depression.
A. low; tight
B. low; easy
C. high; tight
D. high; easy
Q:
In response to the early Keynesians, monetarists contended that
A. monetary policy during the Great Depression was not easy.
B. bank failures during the Great Depression were not the cause of the decline in the money supply.
C. evidence from the Great Depression demonstrated the ineffectiveness of monetary policy.
D. there is a weak link between interest rates and investment spending.
Q:
Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.
A. nominal interest rates; investment spending
B. real interest rates; investment spending
C. money supply; aggregate output
D. investment spending; aggregate output
Q:
Early Keynesians felt that ________ policy was ________, so they stressed the importance of ________ policy.
A. fiscal; ineffective; monetary
B. monetary; ineffective; fiscal
C. monetary; potent; monetary
D. fiscal; too potent; monetary
Q:
When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing
A. structural-model evidence.
B. reduced-form evidence.
C. indirect-model evidence.
D. black-box evidence.
Q:
Monetarists' preference for reduced-form models is based on their belief that
A. reverse causation is a problem.
B. structural models may understate money's effect on economic activity.
C. money supply changes are always endogenous.
D. monetary policy affects only investment spending.
Q:
Monetarists contend that the channels of monetary influence in Keynesian structural models are too ________ defined, ________ the importance of monetary policy.
A. broadly; exaggerating
B. broadly; understating
C. narrowly; understating
D. narrowly; exaggerating
Q:
Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a
A. structural model.
B. reduced-form model.
C. black-box model.
D. scientific model.
Q:
Which of the following is NOT an advantage of a correctly specified structural model?
A. Structural models may help us to more accurately predict the effect that monetary policy has on economic activity.
B. A structural model provides more pieces of evidence about monetary policy's effect on economic activity.
C. Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income.
D. A structural model imposes no restrictions on the way monetary policy affects the economy.
Q:
Monetarists directly study the link between money and economic activity using
A. structural models.
B. reduced-form models.
C. scientific models.
D. experimental models.
Q:
A model that is composed of many equations that show the channels through which monetary and fiscal policy affect aggregate output and spending is called a
A. reduced-form model.
B. median-voter model.
C. informed median-voter model.
D. structural model.
Q:
The channels through which monetary policy affects economic activity are called the ________ of monetary policy.
A. transmission mechanisms
B. flow mechanisms
C. distribution mechanisms
D. allocational mechanisms
Q:
The monetarist-Keynesian debate on the importance of monetary policy is unresolved because monetarists and Keynesians focus on two different types of evidence that generate conflicting conclusions. Monetarists tend to focus on
A. structural-model evidence, while Keynesians focus on reduced-form evidence.
B. reduced-form evidence, while Keynesians focus on structural-model evidence.
C. reduced-form evidence, while Keynesians focus on direct-model evidence.
D. structural-model evidence, while Keynesians focus on direct-model evidence.
Q:
On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of
A. direct-model evidence.
B. informed voter-model evidence.
C. structural-model evidence.
D. reduced-form evidence.
Q:
________ examines whether one variable affects another by using data to build a model that explains the channels through which this variable affects the other.
A. Indirect-model evidence
B. Organizational-model evidence
C. Reduced-form evidence
D. Structural-model evidence
Q:
________ examines whether one variable has an effect on another by simply looking directly at the relationship between the two variables.
A. Reduced-form evidence
B. Organizational-model evidence
C. Direct-model evidence
D. Structural-model evidence